With customers opting for new online payment methods, more
and more online and in-store retailers are partnering with BNPL platforms.
Plus, the BNPL finance sector is heating up as more young people turn to these
services, with 36% of those aged 21-25 using BNPL in the US, according to
Forbes.
With the growing BNPL sector largely unregulated and debt
accumulation untraceable, the regulator is sitting up and taking notice. Regulation
is bound to happen and will shift the entire BNPL space, leaving a void in the
market for compliant providers. There is a window of opportunity to fill this
void, and this is where collaboration comes into play.
According to McKinsey’s Consumer Lending Pools data,
fintechs currently hold the majority of the BNPL market share and have already
captured about $8-10 billion in annual consumer financing revenue.
However, banks have been actively moving into the space. As
they are already compliant with financial regulation, they just need a way to
bring their competitive consumer financing programmes to the point of sale
(POS), which is when they look to collaborate with fintechs.
Therefore, consolidation will be driven by banks and
financial institutions looking to leverage fintechs’ technological solutions in
order to become strong BNPL players, and not only by fintechs rushing to
partner with banks to become compliant.
The growing benefits for both parties are driving
cross-industry consolidations and partnerships. Successful partnerships are not
only those that allow for regulatory compliance but those based on the
alignment of values and enhancement of the core strengths of each party.
The arrival of acquisitions
Mergers and acquisitions (M&A) typically involve one
entity realising that another company brings value and potential. Often this
results in one company swallowing up another. In my opinion, though, the real
power of consolidation lies in acknowledging and retaining the true nature of
each company to contribute to mutual growth.
For example, acquisition can be restrictive since the
secondary entity’s entire mission often serves the primary company’s purpose
instead of serving its own innovation and growth goals.
True partnerships forming
On the other hand, in the case of partnerships, the
collaborating companies equally benefit from each other’s audience and reach.
Instead of inhibiting each other’s growth, true partnership stimulates growth
and encourages cross-pollination from one to another. I’ve always found that
true collaboration is based on mutually beneficial partnerships and shared
values.
An example of such partnership is Klarna and Stripe, two of
the world’s biggest private fintech companies, that teamed up but still
retained their own independent identities. Stripe agreed on a strategic
partnership with Klarna to offer the Swedish firm’s BNPL payment method to its
merchants without acquiring the company.
Without these kinds of mutually beneficial partnerships
between banks and fintechs in the BNPL space, banks will not only lose out on
loan volume but also miss out on consumers as they divert to fintech companies.
Through partnering with fintech providers, not necessarily through acquisition,
banks can regain and keep their consumers close and strengthen the customer
relationship, value, and experience.
Global expansion for the win
Recently, Global Processing Services raised over $300
million to accelerate the global technology and fintech revolution, showing the
significant role of the fintech industry worldwide.
While some may argue that the most successful fintechs
maintain a niche in terms of markets and products, others favour expansion.
Global expansion to different markets, through consolidation
and partnerships, fuels innovation and out-of-the-box thinking as companies
face new issues and need to come up with solutions to different markets’
demands. It also means companies can apply fundamental learnings from one
market to another and widen their customer range by partnering with entities
with a global presence.
As the traditional financial barriers break down and the
world becomes more interconnected simultaneously, the newly evolving
cross-border collaborations and partnerships between fintech companies and
banks will be essential for the future of the financial services industry and
technology sector.
COVID-19 has also proven that it’s not just large
corporations and financial institutions that can adapt to a ‘digital-first’
approach. In fact, their timelines for introducing new products must speed up
dramatically, which can be achieved through partnerships forged overnight.
Expect to see many more of these happen – very quickly.
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